Income Tax Appellate Tribunal - Delhi
Vikas Books Ltd., New Delhi vs Department Of Income Tax on 14 March, 2011
ITA NOS. 3437 & 2729/DEL/2011
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "H" NEW DELHI
BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
AND
SHRI C.M. GARG, JUDICIAL MEMBER
I.T.A. No. 3437/Del/2011
A.Y. : 2007-08
M/s Vikas Books Ltd., vs. Income Tax Officer,
306, 2nd floor, EMCA Chambers, Ward -17(3),
51, Daryaganj, New Delhi
New Delhi - 110 002
(PAN: AABCV 8357P)
And
ITA NO. 2729/Del/2011
A.Y. : 2007-08
Income Tax Officer, vs. M/s Vikas Books Ltd.,
Ward 17(3), 306, 2nd floor, EMCA Chambers,
New Delhi 51, Daryaganj, New Delhi
(Appellant ) (Respondent)
Assessee by : Sh. K. Sampath, Adv.
Department by : Mr. Shumana Sen, Sr. D.R.
ORDER
PER SHAMIM YAHYA : AM These cross appeals filed by the Assessee and Revenue emanating out of order of the Ld. Commissioner of Income Tax (Appeals)-XIX, New Delhi dated 14.3.2011 and pertain to assessment year 2007-08.
2. The grounds raised in Assessee's appeal in ITA No. 3437/Del/2011 read as under:-
1ITA NOS. 3437 & 2729/DEL/2011 "That on the facts and in the circumstances of the case and in law the Ld. Commissioner of Income Tax (A) erred in confirming the following actions of the Assessing Officer:
1) In making an addition of ` 1,03,179/- u/s.
40(a)(ia) of the I.T. Act, 1961 even though the payments were not in contravention of Section 194C of the Income Tax Act, 1961;
2) In making addition of ` 4,12,150/- incurred on payments made to authors even though the said payments were made entirely for the purpose of business were thus allowable as a deduction u/s. 37 of the Act;
The above actions being arbitrary, erroneous and unlawful must be quashed with direction for appropriate relied."
3. The ground no. 1 was not pressed by the ld. Counsel of the assessee. Hence, the same is dismissed as not pressed.
4. Apropos the issue of addition of ` 412150/-
On this issue Assessing Officer noted that assessee has claimed ` 412150/- towards book writing expenses. Assessee was asked to furnish the list of such books which were published in house and also to produce evidence to the effect that these books were written by the said persons and also published by the assessee company. Since no reply was received in this regard, a sum of ` 412150/- was disallowed and added back to the income of the assessee.
2ITA NOS. 3437 & 2729/DEL/2011
5. Upon assessee's appeal Ld. Commissioner of Income Tax (A) noted that assessee is a trader of books. He further noted that the expenditure is not in respect of any publication made by it. He noted that writers are paid by the publishers by way of royalty. He further held that no proper details were furnished to the Assessing Officer to substantiate its stand. Hence, Assessing Officer confirmed the Assessing Officer's action.
6. Against the above order the assessee is in appeal before us.
7. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that disallowance has been made in this regard as the assessee was not in a position to submit the relevant details. Before us ld. Counsel of the assessee submitted that he should be given one more opportunity before the Assessing Officer to enable him to substantiate the details in the impugned issue. Upon careful consideration, in the interest of justice, we remit this issue to the file of the Assessing Officer. The Assessing Officer shall examine the issue after giving the assessee adequate opportunity of being heard.
8. In the result, this appeal by the Assessee is partly allowed for statistical purpose.
9. The grounds raised in Revenue's appeal in ITA No. 2729/Del/2011 read as under:-
"1. On the facts and circumstances and in law the Ld. Commissioner of Income Tax (A) erred in admitting the additional evidences, as there was no apparent 3 ITA NOS. 3437 & 2729/DEL/2011 reasonable cause for not filing the said evidences during the assessment proceedings.
2. On the facts and circumstances and in law the Ld. Commissioner of Income Tax (A) erred in forwarding the additional evidences without a specific direction as to the nature of enquiries to be made by the Assessing Officer.
3. On the facts and circumstances and in law the Ld. Commissioner of Income Tax (A) erred in forwarding the additional evidences without any specific direction for nature of enquiry to be made by the Assessing Officer ignoring that there was nothing on records, from which the Assessing Officer could have verified the additional evidences.
4. On the facts and circumstances and in law the Ld. Commissioner of Income Tax (A) erred in deleting addition of ` 5 lacs which the Assessing Officer had made on a/c non-verification of closing stock in the absence of stock register.
5. On the facts and circumstances and in law the Ld. Commissioner of Income Tax (A) erred in allowing the following relief to the assessee on the basis of additional evidences filed during the appellate proceedings, which remained to be examined by the Assessing Officer by way of enquiry and even by the Ld. Commissioner of Income Tax (A):4
ITA NOS. 3437 & 2729/DEL/2011
a) On account of trading results as the assessee did not maintain stock register. - ` 5 lacs
b) On account of expenses debited to non EOU unit under section 10B(7) read with section 80Ia(10)
- ` 10 lacs
c) On account of commission paid for want of services rendered - ` 4,46,836/-
d) Deduction u/s. 10A/10B - ` 30,50,940/-"
10. Apropos ground no. 1, 2 and 3 relating to admission of additional evidences by the Ld. Commissioner of Income Tax (A).
11. In this regard Assessing Officer noted that assessee has claimed deduction u/s. 10B amounting to ` 30,50,940/-, as per form 56G. The assessee was asked to furnish/justify its claim in respect of this deduction with reference to the production of computer software for export as well as the claim of expenses that had been charged to its export unit. Assessing Officer referred to the provision of section 10B of the Act. He noted that during the course of assessment proceedings, despite being given adequate opportunities and sufficient time, the assessee could not establish that it was approved as 100% EOU as prescribed under explanation 2(iv) of Income Tax Act, 1961 or any other authority in accordance with the said provisions. Assessing Officer further noted that in the assessment proceedings, after the realization that its claim u/s. 10B was not tenable, the assessee has shifted its stand for claim of deduction from section 10B to section 10A. It was thereafter brought on record that assessee is registered under the STPI Scheme of the Government of India and hence entitled 5 ITA NOS. 3437 & 2729/DEL/2011 to deduction for the computer software exported by it. The Assessing Officer asked to submit the following documents :-
i) Copy of agreement with STPI;
ii) Copy of agreement for export obligation and acceptance of
terms and conditions with STPI;
iii) Copy of the acceptance of the legal agreement by the STPI
and the monthly reports required to be filed with STPI for the manufacture and export of computer software.
None of the documents were filed by the assessee and assessee submitted that the file of STPI being maintained by the assessee is not traceable and the efforts have been made to find the same. Assessee also submitted that its claim for deduction u/s. 10B for the A.Yrs. 2005-06 and 2006-07 has been allowed. Assessing Officer did not find this ground sustainable as he found that for the assessment year 2006-07 the case was completed u/s. 143(1). As regard assessment year 2005-06 is concerned, Assessing Officer observed that it was the first year of deduction u/s. 10B and observed that on verification of record, it was not seen that the issue was not properly examined. Assessing Officer proceeded to hold that the assessee has not provided the relevant details. He held that the claim of the assessee both under section 10A and 10B of the I.T. Act cannot be allowed and the same was disallowed.
12. Upon assessee's appeal Ld. Commissioner of Income Tax (A) observed that assessee has filed a petition u/s. 46A dated 20.9.2010 enclosing the following documents as additional evidence in support of ground raised in this regard.
6 ITA NOS. 3437 & 2729/DEL/2011 S.No. Particulars Pages 1. Copies of softex forms submitted 01-34 with STPI for the F.Y. 2006-07 2. Copies of monthly progress report 35-70 submitted with STPI 3. Copies of letter dated 04.11.2004 submitted with STPI containing a. Letter of acceptance b. Legal agreement c. Letter of approval 71-83 d. Other enclosures e. Change of address letter 4. Certificate by Datacom Service 84 Provider 5. Certificate from SIFY for internet 85 connection. 6. Copy of job order 86 7. Copy of green card renewal letter 87-88
12.1 Ld. Commissioner of Income Tax (A) asked for remand report with respect to the additional evidences filed. Ld. Commissioner of Income Tax (A) held that after careful consideration of the facts brought on record, the additional evidence is found crucial and necessary to decide the issues and the same are admitted. Ld. Commissioner of Income Tax (A) noted that assessee claimed deduction u/s. 10B for ` 30,50,940/- as per Form No. 56G. The Assessing Officer disallowed the deduction u/s. 10B mainly on the ground that the following documents were produced:-
i) Copy of agreement with STPI;
ii) Copy of agreement for export obligation and acceptance of terms and conditions with STPI;
7ITA NOS. 3437 & 2729/DEL/2011
iii) Copy of the acceptance of the legal agreement by the STPI and the monthly reports required to be filed with STPI for the manufacture and export of computer software.
12.2 Ld. Commissioner of Income Tax (A) noted that assessee has set up 100% Export Oriented Unit (EOU) under the STPI scheme for the development and manufacture of computer software/ ITAT enabled services. Ld. Commissioner of Income Tax (A) further noted that assessee has intimated that shifting of the premises to the new address. Ld. Commissioner of Income Tax (A) further noted that assessee's counsel has brought on the record various documents by way of additional evidence to support the claim which was not made available to the Assessing Officer . Ld. Commissioner of Income Tax (A) further noted that the said inadequacy was the foundation for rejection of assessee's claim for benefit u/s. 10B. Ld. Commissioner of Income Tax (A) noted that in view of the documents submitted by the assessee as additional evidences alongwith the documents produced in the course of assessment proceedings he noted that assessee has fulfilled the criteria laid down. He further noted that all the objections of the Assessing Officer are successfully met with cogent evidence. Ld. Commissioner of Income Tax (A) further noted that deduction was allowed in assessment year 2005-06 in assessment made u/s. 143(3) of the I.T. Act. Ld. Commissioner of Income Tax (A) further observed that rule of consistency is to be followed, unless there is a change of facts and position of law. In the background of the aforesaid discussion, Ld. Commissioner of Income Tax (A) held that assessee is eligible for relief u/s. 10B as in the earlier years.
13. Against the above order the Revenue is in appeal before us.
8ITA NOS. 3437 & 2729/DEL/2011
14. We have heard the rival contentions in light of the material produced and precedent relied upon. Ld. Departmental Representative submitted that there is a gross violation of Rule 46A in this case. She claimed that Ld. Commissioner of Income Tax (A) has erred in admitting the additional evidences as there was no apparent reasonable cause for not filing these documents during the assessment proceedings. Ld. Counsel of the assessee on the other hand submitted that the additional evidences submitted by the assessee were in public domain. Hence he pleaded that Ld. Commissioner of Income Tax (A) has correctly admitted the additional evidences and also got remand report from the Assessing Officer. He pleaded that order of the Ld. Commissioner of Income Tax (A) be sustained in this regard. We have carefully considered the submissions and perused the records. We find that assessee in this case has not initially submitted the relevant details to the Assessing Officer, as it was claimed that relevant files in this regard was misplaced. Ld. Commissioner of Income Tax (A) upon examination the relevant details and submissions of the assessee has allowed the assessee's claim. In our considered opinion, in the facts and circumstances of the case, this issue needs to be remitted to the file of the Assessing Officer. Hence, this issue is remitted back to the file of the Assessing Officer. The Assessing Officer is directed to examine the issue with reference to the additional evidences filed by the assessee before the Ld. Commissioner of Income Tax (A).
15. Apropos deletion of addition of ` 5 lacs :-
Assessing Officer in this regard noted that a perusal of the Tax Audit Report filed by the assessee reveals that instead of giving 9 ITA NOS. 3437 & 2729/DEL/2011 quantitative details of the goods traded by the assessee, the value figures had been furnished. Assessee in this regard submitted that it has not maintained any stock register and the opening and closing stock are valued on the basis of the stock taken on the last day of the accounting year and valued according to the cost or market price whichever is lower. Assessing Officer did not find this explanation acceptable. He held that assessee is only trading the books and the purchase and sale thereof are clearly quantifiable on the basis of number of books purchased and sold. Assessing Officer held that in the absence of the proper verification, the trading results of the assessee could not be relied upon and hence need determination on an estimated basis only. The Assessing Officer made the addition of ` 5 lacs and held that the addition was made to trading results declared by the assessee company in non EOU.
16. Upon assessee's appeal Ld. Commissioner of Income Tax (A) noted that Assessing Officer had made adhoc addition of ` 5 lacs by rejecting the trading results merely on the ground that assessee company has not maintained any stock register. Ld. Commissioner of Income Tax (A) further noted that Assessing Officer has not pointed out any defect in the books of accounts maintained by the assessee. The books of accounts were duly audited and purchases and sales were duly recorded and there was an increase in GP from 18.70% to 26.94%. Ld. Commissioner of Income Tax (A) further noted that assessee has properly explained the reason for not maintaining the stock register. This was due to the fact that assessee was dealing in books and it was not possible to maintain the stock register in this regard. Referring to various decision relied upon by the assessee Ld. Commissioner of Income Tax (A) noted that the consensus of judicial 10 ITA NOS. 3437 & 2729/DEL/2011 opinion is that the mere absence of a stock register cannot be basis to reject the trading version. Hence, Ld. Commissioner of Income Tax (A) held that there is no reason for rejecting the books results warranting an addition much less an adhoc addition. Hence, Ld. Commissioner of Income Tax (A) deleted the addition of ` 5 lacs in this regard.
17. Against the above order the Revenue is in appeal before us.
18. We have heard the rival contentions in light of the material produced and precedent relied upon. We note in this regard that assessee has maintained necessary books and records properly and no defect has been found by the Assessing Officer in this regard. In our considered opinion, mere absence of stock register cannot be so fatal so as to render the trading results not acceptable. We agree with the finding of the Ld. Commissioner of Income Tax (A) that when the books of accounts were duly audited and purchase and sales were duly recorded and the GP has increased considerably from previous year, there was no justification of adhoc addition in this regard. Hence, we affirm the order of the Ld. Commissioner of Income Tax (A) and decide the issue in favour of the assessee.
19. Apropos issue of expenses debited to non EOU of ` 10 lacs On this issue Assessing Officer noted that assessee has two units one EOU claimed deduction u/s. 10B and second one doing inland business. Assessing Officer noted that assessee has not apportioned the expenses on actual basis. He noted that one consolidated balance-sheet is prepared. Assessing Officer further observed that while examining the book of accounts, it was seen that the salary of persons namely Sh. Pradeep Gulati and Sh. Ravi Gupta to 11 ITA NOS. 3437 & 2729/DEL/2011 name a few are booked in the case of EOU whereas they are employees of non-EOU. Collection charges has also been shown paid to these employees. Assessing Officer further observed that Advertisement expenses are booked in EOU at ` 7,03,949/- and in the case of non EOU at ` 21,73,088/- whereas there are no separate bills in the case of EOU and non EOU. Similarly, in respect of other expenses also. Assessing Officer observed that it is not possible to bifurcate the expenses on actual basis as both the units function under one roof. There is one consolidated balance sheet and vehicles are combinedly stated to used on 50:50 basis which is not practically possible as in the case of software business of the assessee, hardly any traveling is involved. Assessing Officer observed that the above cited illustration are not only few examples to the fact that the expenses have not been assigned to the units on actual basis. Under these circumstances, it is not possible to bifurcate the expenses on actual basis and assign the expenses exactly to each unit. Assessing Officer further referred to the provision of sub-section 10 of section 80IA. Assessing Officer held that some of the expenses of EOU has been shifted to non EOU only to reduce the profit of non- EOU and enhance the profit EOU and accordingly to enhance deduction claimed u/s. 10B of Income Tax Act, 1961. Assessing Officer held that the allocation of expenses has produced to the EOU more than the ordinary profits which might be expected from this eligible business of computer software export. Accordingly, Assessing Officer made the addition of ` 10 lacs to the trading results declared by the assessee in the case of the Non-EOU unit of the assessee.
20. Before the Ld. Commissioner of Income Tax (A) assessee submitted the detailed submission as under:-
12ITA NOS. 3437 & 2729/DEL/2011 "Since the AO has refused deduction under section 10A/10B of the Act, he had no authority to invoke the contents of Section 10B(7) and 10B(8) and sections 80-IA (10) of the Act. Had he given the deduction u/s 1OB of the Act as claimed, then there could be some justification for raising this objection. Since the deduction has been denied in toto, the AO had no jurisdiction to invoke the two provisions as cited by him.
Even otherwise, the AO's view that since one consolidated Balance Sheet had been prepared, he was unable to assess and attest the allocation of expenses, is grossly incorrect. Expenses allocation cannot be made from the preparation of the balance sheet. The expenses are required to be gauged and allocated from P&L account. Different P&L accounts do merge into one Balance Sheet so as to depict the total financial status of the entity. However, the mere fact that one single Balance Sheet has been projected to lead to the conclusion that the expenses allocation are by themselves wrong. In any case with the appellant, each of the two units have separate profit & loss account, and a combined balance sheet, which accords with law and practice.
The AO further observes that Shri Pradeep Gulati and Shri Ravi Gupta were EOU employees and that they were discharging the domestic responsibilities is grossly incorrect. His further remarks that there were a few others like them, who were doing so, is vague and ambiguous and 13 ITA NOS. 3437 & 2729/DEL/2011 for that reason his further remarks should be ignored. As to Shri Pradeep Gulati and Shri Ravi Gupta, the AO did not mention the factum of their having contacts in this line of business of Book trading. It is due to utilization of these contacts and further without expending any time on such pursuits, that they discharged this job. It is note-worthy that there are no revenue expenses which have been paid for by the assessee in respect of pursuits of Shri Pradeep Gulati and Shri Ravi Gupta in the discharge of the domestic units' functioning. Further the AO's charge in this regard is wrong. If the expenses of an exempt business are debited to the expenses' of a taxable business, the assessee may stand to gain. But that would be in a situation where the act will go unnoticed. In the subject case, the assessee could not have done it in that way for the simple reason that it could never anticipate at that round of time that the legitimate claim U/S lOB of the Act, would be denied by the AO and so this expedient would be necessary.
So far as the billing is concerned, the common expenses had been duly allocated on the basis of an equitable formula. The AO has reservations in terms of letter dated 23.12.09 that allocation could be made on the basis of turnover. The assessee's case has been that the allocation on turnover basis does not lead to a logical end as was stated in Para 6 of the assessee's letter dated 24.12.2009.
These details and explanations were ignored by the AO.
14ITA NOS. 3437 & 2729/DEL/2011 In these circumstances, directions are solicited for annulling the action of the AO."
21. Considering the above, Ld. Commissioner of Income Tax (A) observed that Assessing Officer has found that there is shifting of expenses from the EOU unit to Domestic unit to inflate the profits of exempted unit and reduce the profits of domestic unit to pay lesser taxes. Ld. Commissioner of Income Tax (A) observed that assessee has given the reasonable basis for apportioning of the expenses. Ld. Commissioner of Income Tax (A) further observed that the explanations brought on record were ignored by the Assessing Officer. Accordingly, Assessing Officer held that there is no case for addition on account of shifting of expenses.
22. Against the above order the Revenue is in appeal before us.
23. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that in the present case no case has been made out against the assessee that the expenses were bogus. Assessing Officer's only grievance is that expenses were not properly allocated between the EOU and non-EOU unit. In this regard, we find that assessee has submitted that there was reasonable basis for allocation of the expenses between the EOU and non-EOU unit. We find that assessee's submissions are cogent one. Under the circumstances, we affirm the order of the Ld. Commissioner of Income Tax (A) on this issue and decide the issue in favour of the assessee.
24. Apropos addition on account of commission paid of ` 4,46,836/-
15ITA NOS. 3437 & 2729/DEL/2011 On this issue Assessing Officer noted that assessee has paid commission to two persons. Assessee was asked to produce the documentary evidence as to what services had been rendered by these parties which had resulted in the payment of commission to them. The Assessing Officer observed that assessee did not furnish any cogent evidence in support of services rendered by these two individuals. He held that deduction of tax at source and payment by cheque is also not sacrosanct. The Assessing Officer observed that while examining the books of accounts no evidence was found and subsequently also no cogent evidence was filed. Assessing Officer held that assessee has failed to file cogent evidence regarding services rendered by the persons to whom commission was paid, a sum of ` 4,46,836/- was disallowed and added to the income of the assessee.
25. Before the Ld. Commissioner of Income Tax (A) assessee's submissions were as under:-
"The AO was provided the details of supplies made through Amardeep and Harjeet Singh. The names of the parties to whom these persons had made the supplies alongwith their locations were duly furnished to the AO. The AO adopted an arm-chair approach and despite such plausible evidence on record, he has chosen to dub the same as being not coherent evidence and has made the disallowance unnecessarily. There is nothing to suggest in terms of the action of the AO that the aspect of entire expenditure wholly and exclusively for the purpose of business was not established. Moreover, book entries will not contain proof of 16 ITA NOS. 3437 & 2729/DEL/2011 service as misconceived by the AO. Selling of books is the assessee's business and in the task of selling books, other persons have been engaged who have assisted the appellant in the selling of books. That by itself makes the expenditure being incurred exclusively for the purpose of business. Full details have been given to the AO. The onus is on him to effect any verification. He did not indulge in any act of such sort. Commerce emerges in the context of nature of business. The nature of business is sale of books. The sale of books requires reaching out as extensively as possible. This is what the appellant has done by availing the services of Amardeep and Harjeet Singh. The AO has failed to appreciate the facts in their proper perspective and even the scope of the applicable law and has erroneously disallowed the amount. The addition so made by the AO, must be vacated."
26. Considering the above, Ld. Commissioner of Income Tax (A) held that the Assessing Officer has disallowed the commission payment on the ground that no cogent evidence was led in support of the services rendered by them making it an allowable expenditure under S. 37 and Ld. Commissioner of Income Tax (A) noted that assessee's counsel has brought on record that Sh. Harjeet Singh has brought business of ` 44,57,640/- on which 5% commission working out to ` 2,22,882/- was paid. Similarly, Sh. Amardeep Singh was paid ` 2,23,954/- being 5% of ` 44,79,080/- representing the business done through him. In view 17 ITA NOS. 3437 & 2729/DEL/2011 of the aforesaid, Ld. Commissioner of Income Tax (A) held that the commission payment is to be allowed.
27. Against the above order the Revenue is in appeal before us.
28. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that assessee has paid commission to two persons for bringing the business to the assessee.
The name and address of the said persons were duly given. The business done through the aforesaid persons was also quantified.
Hence, in our considered opinion, assessee's submissions are cogent here and disallowance in this regard is not called for. Assessing Officer has not held that the expenses are bogus. But he has opined that expenses were not exclusively for the purpose of business. In this regard, we find that the Hon'ble Apex Court in the case of CIT, Bombay Vs. Walchand and Co. Private Ltd. in 65 ITR 381, has held that "in applying the test of commercial expediency for determining whether an expenditure was wholly and exclusively for business, the expenditure has to be adjudged from the point of view of the businessman and not of revenue". Accordingly, we do not find any infirmity or illegality in the order of the Ld. Commissioner of Income Tax (A) on this issue. Accordingly, we affirm the order on this issue.
18ITA NOS. 3437 & 2729/DEL/2011
29. In the result, both the appeals filed by the Assessee and Revenue are partly allowed for statistical purposes.
Order pronounced in the open court on 31/8/2012.
Sd/- Sd/-
[C.M. GARG] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date: 31/8/2012
SRBHATNAGAR
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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